Chapter 3 The Making Of A Global World

The Pre-Modern World

When we discuss 'globalisation' today, we often think of an economic system that emerged in the recent past. However, the process of creating an interconnected global world has a long and complex history. This history involves extensive trade, human migration in search of work, the movement of capital, and much more. To understand our current level of global interconnectedness, we must examine the various stages through which this interconnected world developed.

Human societies have become increasingly linked throughout history. From ancient times, individuals like travellers, traders, priests, and pilgrims journeyed vast distances for various reasons: seeking knowledge, pursuing opportunities, spiritual fulfillment, or escaping persecution. These movements facilitated the exchange not only of goods and money but also of values, skills, ideas, inventions, and even diseases and germs.

Evidence suggests early global links existed around 3000 BCE, with active coastal trade connecting the Indus Valley civilizations with regions in present-day West Asia. For over a thousand years, cowries (seashells, used as currency) from the Maldives were traded as far as China and East Africa. The long-distance spread of infectious diseases can be traced back to the seventh century, becoming a clearly discernible link by the thirteenth century.

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Silk Routes Link The World

The Silk Routes are a prime illustration of the vibrant trade and cultural connections that existed between distant parts of the world in the pre-modern era. The name highlights the significance of Chinese silk transported westward along these paths.

Historians have identified multiple Silk Routes, spanning both land and sea, which connected vast areas of Asia and linked Asia to Europe and northern Africa. These routes were active before the Christian Era and remained prominent until roughly the fifteenth century. Besides Chinese silk, other goods traveled these routes, including Chinese pottery, textiles, and spices from India and Southeast Asia. In exchange, precious metals like gold and silver flowed from Europe into Asia.

Trade was often accompanied by cultural exchange. Early Christian missionaries and later, early Muslim preachers are believed to have used these routes to reach Asia. Furthermore, long before these movements, Buddhism spread from eastern India in various directions, utilizing the intersecting points of the Silk Routes.

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Food Travels: Spaghetti And Potato

Food provides compelling examples of long-distance cultural exchange. Traders and travelers were instrumental in introducing new crops to the regions they visited. Sometimes, seemingly distinct foods from different parts of the world might share a common origin.

• The connection between spaghetti and noodles is a popular example. It's thought that noodles originated in China and spread westward, eventually becoming spaghetti. Alternatively, some believe Arab traders brought pasta to Sicily (an island in Italy) as early as the fifth century. Similar types of food were also present in India and Japan, making the exact origin difficult to pinpoint. Nevertheless, such connections highlight the possibility of significant long-distance cultural contact in the pre-modern world.
• Many everyday foods consumed today, such as potatoes, soya, groundnuts, maize, tomatoes, chillies, and sweet potatoes, were unknown in Europe and Asia until about five centuries ago. These foods were introduced to these continents only after Christopher Columbus's voyages led to the 'discovery' of the Americas (referring collectively to North America, South America, and the Caribbean). These staple crops were originally cultivated by the indigenous peoples of the Americas.

The introduction of new crops, like the potato, could have profound impacts, sometimes even determining survival. In Europe, the simple potato significantly improved the diet of the poor, allowing them to eat better and live longer. However, this dependence could also be precarious. In Ireland, the poorest peasants relied so heavily on potatoes that when a disease destroyed the potato crop in the mid-1840s (leading to the Great Irish Potato Famine), hundreds of thousands died from starvation, and many more emigrated.

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Conquest, Disease And Trade

The world became dramatically smaller in the sixteenth century as European sailors successfully found a sea route to Asia and crossed the Atlantic Ocean to reach the Americas. Before this, the Indian Ocean had been a hub of bustling trade for centuries, with extensive exchange of goods, people, knowledge, and customs. The Indian subcontinent was centrally located in these networks. The arrival of Europeans led to the expansion and redirection of some of these trade flows towards Europe.

Before its discovery by Europeans, the Americas had been isolated from the rest of the world for millions of years. Starting in the sixteenth century, the vast resources of its lands, crops, and minerals began to reshape trade and societies globally. Precious metals, particularly silver from mines in present-day Peru and Mexico, significantly boosted Europe's wealth and funded its trade with Asia. Legends about South America's immense riches, such as the fabled city of gold, El Dorado, circulated in Europe in the seventeenth century, inspiring many expeditions.

The Portuguese and Spanish conquest and colonization of the Americas were well underway by the mid-sixteenth century. This conquest was not solely due to superior military technology. A far more powerful weapon, unintentionally carried by the Spanish conquerors, was **disease-carrying germs**, most notably smallpox. Due to their long isolation, the indigenous populations of the Americas had no natural immunity to these European diseases. Smallpox proved particularly devastating, spreading deep into the continent even before the Europeans arrived, killing and decimating entire communities, and thus paving the way for easier conquest.

While indigenous populations could potentially acquire or capture European firearms and use them against the invaders, they had no defense against diseases like smallpox, to which the Europeans had developed immunity.

Until the nineteenth century, Europe was often characterized by poverty, hunger, overcrowded and unhealthy cities, widespread diseases, and religious conflicts leading to persecution. Thousands of Europeans emigrated to the Americas seeking better lives. By the eighteenth century in the Americas, large plantations, worked by slaves forcibly brought from Africa, were producing crops like cotton and sugar for European markets.

Before the fifteenth century, China and India were among the world's wealthiest nations and dominant players in Asian trade. However, from the fifteenth century, China is said to have limited its overseas interactions and entered a phase of relative isolation. China's reduced role, combined with the growing importance of the Americas, gradually shifted the centre of global trade westward, with Europe emerging as the new hub of world trade.

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The Nineteenth Century (1815-1914)

The nineteenth century witnessed profound global changes driven by the complex interplay of economic, political, social, cultural, and technological factors. These forces reshaped societies and international relations.

Economists identify three main types of international economic 'flows' or movements:

1. The flow of trade: Primarily referring to the exchange of goods, such as cloth or wheat, across borders.
2. The flow of labour: Involving the migration of people seeking employment in other countries.
3. The movement of capital: Relates to short-term or long-term investments made over significant distances.

These three flows were deeply interconnected during the nineteenth century and impacted people's lives more profoundly than ever before. While interconnections could sometimes be disrupted (e.g., labour migration was often more restricted than trade or capital flows), examining these three flows together provides a better understanding of the nineteenth-century world economy.

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A World Economy Takes Shape

The transformation in food production and consumption patterns in industrial Europe, particularly Britain, is a good starting point to understand the shaping of a world economy. Traditionally, countries aimed to be self-sufficient in food. However, in nineteenth-century Britain, achieving food self-sufficiency led to lower living standards and social tension. Why?

Population growth from the late eighteenth century increased the demand for food grains in Britain. As cities expanded and industries grew, the demand for agricultural products surged, driving up food prices. Pressured by landowning interests, the British government restricted the import of corn through laws known as the 'Corn Laws'. However, industrialists and urban residents, unhappy with high food prices, campaigned for and eventually forced the **abolition of the Corn Laws**.

After the Corn Laws were repealed, it became cheaper to import food into Britain than to produce it domestically. British agriculture couldn't compete with imports, leading to large areas of land being left uncultivated and widespread unemployment among farm workers. These displaced individuals moved to cities or emigrated overseas.

As food prices fell in Britain, consumption increased. Faster industrial growth from the mid-nineteenth century also led to higher incomes, further boosting food imports. To meet this growing British demand, lands were cleared and food production expanded globally in regions like Eastern Europe, Russia, America, and Australia.

This expansion required more than just clearing land. Railways were built to connect agricultural areas to ports, new harbors were constructed or existing ones expanded to handle the increased cargo. People migrated and settled on these lands to cultivate them, necessitating the construction of homes and settlements. All these activities demanded significant capital and labour. Capital flowed from financial centers like London, and the high demand for labour in places like America and Australia stimulated mass migration. Nearly 50 million people emigrated from Europe to America and Australia in the 19th century. Globally, an estimated 150 million people left their homes seeking a better future.

By 1890, a global agricultural economy was firmly established, accompanied by complex changes in labour migration, capital flows, environmental impacts, and technology. Food was no longer solely local but traveled thousands of miles, produced by agricultural workers (often recent migrants) on large farms that might have been forests a generation before. This produce was transported by railways built for export and by ships increasingly crewed by low-wage workers from various parts of the world.

Similar, though smaller-scale, changes occurred within India, like in west Punjab, where the British Indian government constructed extensive irrigation canals. These 'Canal Colonies' transformed semi-desert areas into fertile agricultural lands producing wheat and cotton for export, settled by peasants from other parts of Punjab.

Beyond food, this trend applied to other commodities. Cotton cultivation expanded worldwide to supply British textile factories, and rubber production also saw global growth. This regional specialization in commodity production led to world trade multiplying dramatically, estimated at 25 to 40 times between 1820 and 1914. Primary products (agricultural goods and minerals) constituted nearly 60 percent of this trade.

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Role Of Technology

Technology played a crucial role in shaping the transformed world of the nineteenth century. Inventions like the railways, steamships, and the telegraph were indispensable for these changes. However, technological advancements were often driven by broader social, political, and economic forces. For instance, colonialism spurred new investments and improvements in transportation infrastructure, such as faster railways, lighter freight wagons, and larger ships, enabling cheaper and quicker movement of goods from distant farms to markets.

The meat trade provides an excellent example of this interconnected process. Before the 1870s, live animals were shipped from America to Europe and then slaughtered upon arrival. This was inefficient; live animals occupied considerable ship space, many died, fell ill, lost weight, or became unsuitable for consumption during the journey. Consequently, meat was expensive and a luxury beyond the reach of most poor Europeans. High prices limited demand and production.

The development of **refrigerated ships** revolutionized the meat trade, allowing the transport of perishable foods over long distances. Now, animals could be slaughtered at the origin (America, Australia, New Zealand) and the meat transported frozen to Europe. This significantly reduced shipping costs and lowered meat prices in European markets. The poor in Europe could now afford a more varied diet, adding meat (and dairy products like butter and eggs) to their traditional bread and potatoes. Improved diets and living conditions contributed to greater social stability within Europe and bolstered support for imperial expansion abroad.

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Late Nineteenth-Century Colonialism

While the late nineteenth century was a period of flourishing trade and expanding markets, it also had a darker side. For many parts of the world, closer integration with the global economy brought about a loss of freedoms and severe disruption to livelihoods. European colonial conquests in this era imposed painful economic, social, and ecological changes on the colonized societies, fundamentally altering their connection to the world economy.

Between 1885 and 1914, European powers aggressively expanded their colonial territories, particularly in Africa. The famous Scramble for Africa saw European powers literally drawing straight borders across the continent at the Berlin Conference in 1885 to demarcate their spheres of influence and control, without regard for existing African societies or ethnic divisions. Britain and France dramatically increased their overseas possessions. New colonial powers emerged, including Belgium and Germany. The United States also joined the ranks of colonial powers in the late 1890s by taking control of some territories previously held by Spain.

Colonialism had a profoundly destructive impact on the economies and lives of the colonized peoples. One stark example is the effect of a cattle disease in Africa.

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Rinderpest, Or The Cattle Plague

In the 1890s, a highly contagious cattle disease known as Rinderpest, or cattle plague, swept through Africa with devastating consequences for people's livelihoods and the local economy. This episode vividly illustrates the widespread impact of European imperialism on colonized societies, showing how even an animal disease could reshape the lives and fortunes of thousands and alter their relationship with the global system.

Historically, Africa had abundant land relative to its population. African livelihoods were traditionally sustained by land ownership and livestock, meaning there was little incentive for people to work for wages. In the late nineteenth century, Europeans were drawn to Africa by its rich reserves of land and minerals, hoping to establish plantations and mines to supply Europe. However, they faced a significant challenge: a shortage of local labour willing to work for wages.

To recruit and retain labor, employers and colonial governments implemented various measures. Heavy taxes were imposed, payable only in cash earned by working for wages on plantations or in mines. Inheritance laws were manipulated to displace peasants from their land, often allowing only one family member to inherit, forcing others into the labor market. Mineworkers were confined to compounds with restricted movement.

Then, Rinderpest arrived in the late 1880s, carried by infected cattle imported from British Asia to feed Italian soldiers invading Eritrea. The disease spread rapidly across Africa, reaching the Atlantic coast by 1892 and the southern tip five years later. The epidemic killed approximately 90 percent of Africa's cattle. This catastrophic loss decimated African livelihoods that depended on livestock. With cattle resources drastically reduced, planters, mine owners, and colonial governments were able to monopolize the remaining scarce cattle and, more importantly, force Africans, who had lost their traditional means of sustenance, into the wage labor market. Control over this vital resource enabled European colonizers to assert greater power and subdue the African population. Similar accounts of destructive impact can be found in other parts of the world subjected to Western conquest in the nineteenth century.

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Indentured Labour Migration From India

The migration of **indentured labour** from India serves as another example illustrating the dual nature of the nineteenth-century global world: it was characterized by faster economic expansion alongside significant hardship, increased prosperity for some but poverty for many others, technological progress in certain areas combined with new forms of coercion.

In the nineteenth century, hundreds of thousands of laborers from India and China were recruited to work on plantations, in mines, and on road and railway construction projects worldwide. In India, these indentured laborers signed contracts promising return passage after working for five years for their employer. An indentured laborer was essentially a bonded laborer contracted to work for a specified period to repay the cost of their journey to a new country.

Most Indian indentured workers originated from regions that are now eastern Uttar Pradesh, Bihar, central India, and the dry districts of Tamil Nadu. These areas experienced significant changes in the mid-nineteenth century, including the decline of cottage industries, rising land rents, and land clearing for mines and plantations. These changes severely affected the poor, who often couldn't pay rents, fell into deep debt, and were consequently forced to migrate in search of work.

The primary destinations for Indian indentured migrants included the Caribbean islands (especially Trinidad, Guyana, and Suriname), Mauritius, and Fiji. Closer to home, Tamil migrants went to Ceylon (Sri Lanka) and Malaya. Indentured workers were also recruited for tea plantations within India, particularly in Assam.

Recruitment was managed by agents hired by employers, who received a small commission. Many migrants agreed to these contracts hoping to escape poverty or oppression in their home villages. Agents often deceived prospective migrants, providing false information about their destination, travel arrangements, type of work, and living conditions. Migrants were sometimes not even informed they were embarking on a long sea voyage. In some cases, agents forcibly abducted unwilling individuals.

Nineteenth-century indenture has been compared to a "new system of slavery." Upon arrival at the plantations, laborers found conditions far harsher than anticipated, with difficult living and working environments and minimal legal rights. Despite the hardship, workers found ways to cope and survive. Many attempted to escape into the wilderness, although they faced severe penalties if caught. Others developed new forms of individual and collective cultural expression, blending different traditions.

In Trinidad, the annual Muharram procession was transformed into a lively carnival called 'Hosay' (named after Imam Hussain), where people of all races and religions participated. The protest religion of Rastafarianism, associated with Jamaican reggae music icon Bob Marley, is also believed to have cultural links to Indian migrants in the Caribbean. 'Chutney music', popular in Trinidad and Guyana, is another vibrant contemporary cultural expression stemming from the post-indenture experience. These examples of cultural fusion highlight how things from different places can mix, evolve, and create entirely new forms as part of the making of the global world.

Many indentured workers chose to remain in their new homes after their contracts expired, or they returned for a brief period before settling permanently overseas. Consequently, large communities of people of Indian origin reside in these countries today, including notable figures like Nobel laureate V.S. Naipaul and West Indies cricketers Shivnarine Chanderpaul and Ramnaresh Sarwan, whose Indian surnames reflect their ancestry.

From the early 1900s, Indian nationalist leaders began condemning the indentured labor system as abusive and inhumane. It was officially abolished in 1921. However, for decades afterward, descendants of these workers, often pejoratively called 'coolies', faced challenges and remained an uneasy minority in the Caribbean islands. Some of Naipaul's early novels capture their sense of displacement and alienation.

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Indian Entrepreneurs Abroad

Cultivating crops for the global market required significant capital investment. While large plantations could access loans from banks, smaller peasants needed alternative sources of finance. This is where Indian bankers and financiers played a role.

Groups like the Shikaripuri Shroffs and Nattukottai Chettiars were prominent among the bankers and traders who provided finance for export agriculture in Central and Southeast Asia. They used their own capital or funds borrowed from European banks. They developed sophisticated systems for transferring money over long distances and even created their own forms of corporate organization.

Indian traders and moneylenders also accompanied European colonizers into Africa. Notably, Hyderabadi Sindhi traders ventured beyond European colonies, establishing successful shops (emporia) in major ports worldwide from the 1860s. They sold local curiosities and imported goods to the increasing number of tourists facilitated by safer and more comfortable passenger ships.

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Indian Trade, Colonialism And The Global System

Historically, India was a major exporter of fine cotton textiles to Europe. With the advent of industrialization, British cotton manufacturing grew rapidly. British industrialists successfully pressured their government to restrict cotton imports from India and protect the domestic industry. Tariffs (taxes on imports) were imposed on cloth entering Britain, leading to a decline in the import of fine Indian cotton.

From the early nineteenth century, British manufacturers began seeking overseas markets for their products. Indian textiles, excluded from the British market by tariffs, faced intense competition in other international markets. Examining India's export figures reveals a significant decline in the share of cotton textiles: it dropped from about 30 percent around 1800 to 15 percent by 1815, and further plummeted to below 3 percent by the 1870s.

So, what did India export? While manufactured exports sharply declined, the export of raw materials grew rapidly. Between 1812 and 1871, the share of raw cotton exports from India increased from 5 percent to 35 percent. Indigo, used for dyeing, was another significant export for many decades. As previously learned, opium exports to China expanded dramatically from the 1820s, briefly becoming India's largest single export. Britain cultivated opium in India, exported it to China, and used the earnings to finance its imports of tea and other goods from China.

Throughout the nineteenth century, British manufactured goods flooded the Indian market, while India's exports to Britain and the rest of the world consisted increasingly of food grains and raw materials. The value of British exports to India was significantly higher than the value of British imports from India, resulting in a 'trade surplus' for Britain with India. Britain utilized this surplus to offset its trade deficits with other countries (where its imports exceeded its exports). This functions as a multilateral settlement system, allowing one country's deficit with one trading partner to be balanced by its surplus with another. By helping Britain balance its deficits, India played a crucial role in the late-nineteenth-century world economy.

Britain's trade surplus with India also financed the 'home charges'. These charges included remittances sent home by British officials and traders, interest payments on India's external debt (loans taken by the colonial government), and pensions for British officials who had served in India.

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The Inter-War Economy

The First World War (1914-1918) was primarily fought in Europe but had a global impact. For the purpose of understanding the global economy, the war initiated a crisis in the first half of the twentieth century that took over thirty years to resolve. This period was marked by significant economic and political instability worldwide, culminating in another devastating war.

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Wartime Transformations

The First World War involved two major power blocs: the Allies (Britain, France, Russia, later joined by the US) and the Central Powers (Germany, Austria-Hungary, Ottoman Turkey). Initially, many expected the war to be short, but it lasted for over four years.

This conflict was unprecedented. The leading industrial nations harnessed their considerable industrial capacities to wage war on an enormous scale, aiming to inflict maximum destruction. It was the first truly modern industrial war, characterized by the mass use of machine guns, tanks, aircraft, and chemical weapons – all products of modern large-scale industry. Millions of soldiers from around the globe were recruited and transported to the front lines using large ships and trains. The sheer scale of casualties, with an estimated 9 million dead and 20 million injured, was unimaginable before the industrial age and the development of industrial weaponry.

Most of the killed and injured were men of working age. This loss significantly reduced the able-bodied workforce in Europe, leading to declining household incomes after the war due to fewer wage earners per family.

Industries were reconfigured to prioritize the production of war materials. Societies were reorganized for the war effort; as men joined the military, women stepped into jobs previously considered suitable only for men.

The war severely disrupted economic links between major global economic powers that were now adversaries. Britain, to finance its war expenditures, borrowed heavily from US banks and the American public. This transformed the US from a nation that owed money internationally into a major international creditor by the war's end. US entities and citizens held significantly more assets overseas than foreign governments and citizens held in the US.

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Post-War Recovery

Economic recovery after the First World War proved challenging. Britain, which had been the world's leading economy before the war, faced a particularly prolonged crisis. While Britain was preoccupied with the war effort, industries developed in India and Japan. After the war, Britain struggled to regain its dominant position in the Indian market and compete internationally with Japan. Furthermore, the extensive borrowing to finance the war left Britain burdened with substantial external debts.

The war had initially stimulated an economic boom with increased demand, production, and employment. However, when the war ended, this boom subsided, leading to a contraction in production and rising unemployment. Simultaneously, governments reduced inflated war expenditures to align with peacetime revenues. These factors resulted in massive job losses; in 1921, one in five British workers was unemployed. Anxiety and uncertainty about employment became persistent features of the post-war landscape.

Many agricultural economies also faced a crisis. Before the war, Eastern Europe was a major supplier of wheat. The war disrupted this supply, leading to a dramatic increase in wheat production in Canada, America, and Australia. When production in Eastern Europe revived after the war, it created a surplus (glut) in the wheat market. Grain prices plummeted, rural incomes declined, and farmers sank deeper into debt.

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Rise Of Mass Production And Consumption

In the United States, the post-war economic recovery was relatively quicker. As mentioned, the war boosted the US economy. After a brief period of difficulties following the war, the US economy resumed strong growth in the early 1920s.

A significant characteristic of the US economy in the 1920s was mass production. While the concept began in the late nineteenth century, it became a defining feature of US industrial production in the 1920s. Henry Ford, the pioneering car manufacturer, was a key figure in mass production. He adapted the assembly line concept from a Chicago slaughterhouse to his car plant in Detroit. He realized an assembly line would enable faster and cheaper vehicle production. The assembly line mandated workers to repeatedly perform a single task mechanically and continuously at a speed set by the conveyor belt, thereby increasing output per worker.

Initially, workers struggled with the relentless pace of the assembly line and quit in large numbers. In response, Henry Ford dramatically doubled the daily wage to \$5 in January 1914. Simultaneously, he banned trade unions in his plants. Ford recouped the higher wage costs by continuously speeding up the production line, forcing workers to work harder. He later described the wage increase as his "best cost-cutting decision."

Ford's industrial methods, known as Fordism, quickly spread throughout the US and were widely adopted in Europe in the 1920s. Mass production reduced manufacturing costs and lowered the prices of engineered goods. Higher wages meant more workers could afford durable consumer goods like cars. US car production surged from 2 million in 1919 to over 5 million in 1929. There was also a boom in the purchase of appliances like refrigerators, washing machines, radios, and gramophone players, often financed through a system of 'hire purchase' (buying on credit with regular installments).

The housing and consumer goods boom of the 1920s formed the foundation of prosperity in the US. Large investments in housing and consumer durables seemed to create a positive cycle: higher employment and incomes led to increased consumer demand, stimulating more investment, which in turn generated further employment and income.

In 1923, the US began exporting capital again and became the world's largest overseas lender. US imports and capital exports also significantly contributed to European recovery and global trade and income growth over the following six years. However, this period of prosperity proved fragile. By 1929, the world plunged into an economic depression of unprecedented severity.

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The Great Depression

The period of the Great Depression began around 1929 and lasted until the mid-1930s. During these years, most parts of the world experienced severe declines in economic activity, including production, employment, incomes, and international trade. The exact timing and intensity of the depression varied between countries, but agricultural regions and communities were generally the hardest hit. This was because the drop in agricultural prices was steeper and more prolonged compared to the prices of industrial goods.

The depression was caused by a combination of factors, highlighting the fragility of the post-war global economy:

1. Agricultural overproduction: This was a persistent problem. As prices fell sharply, farmers attempted to maintain their total income by increasing production, bringing even larger volumes to market. This oversupply worsened the glut and pushed prices down further. Produce often rotted due to a lack of buyers.
2. Withdrawal of US loans: In the mid-1920s, many countries relied on loans from the US to finance investments. When the US economy showed signs of trouble, overseas lenders panicked and quickly withdrew loans. US overseas loans, which exceeded \$1 billion in the first half of 1928, dropped to only a quarter of that amount a year later. Countries heavily dependent on US loans faced a severe financial crisis.

The retraction of US loans affected much of the world differently. In Europe, it led to the failure of major banks and the collapse of currencies, including the British pound sterling. In Latin America and other regions, it intensified the already falling prices of agricultural goods and raw materials. Furthermore, the US attempted to protect its domestic economy by significantly increasing import duties (doubling them), which dealt a further blow to world trade.

The US itself was the most severely affected industrial nation. With falling prices and the looming depression, US banks drastically reduced domestic lending and called back existing loans. Farms failed, households were ruined, and businesses collapsed. Faced with plummeting incomes, many US households couldn't repay loans and lost their homes, cars, and other possessions acquired during the 1920s boom. The prosperity of the 1920s vanished. As unemployment soared, people desperately searched for work, often traveling long distances.

Ultimately, the US banking system itself crumbled. Unable to recover investments or collect loans, and unable to repay depositors, thousands of banks went bankrupt and closed their doors. By 1933, over 4,000 banks had failed, and approximately 110,000 companies collapsed between 1929 and 1932.

By 1935, a modest economic recovery began in most industrial countries. However, the far-reaching consequences of the Great Depression on society, politics, international relations, and people's attitudes proved much more lasting.

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India And The Great Depression

Examining the impact of the Great Depression on India highlights the extent to which the global economy had become integrated by the early twentieth century. Economic shocks originating in one part of the world rapidly spread to others, affecting lives, economies, and societies globally.

As noted earlier, colonial India had become an exporter of agricultural products and an importer of manufactured goods in the nineteenth century. The depression immediately impacted Indian trade; India's exports and imports nearly halved between 1928 and 1934. As international prices crashed, prices within India also plummeted. For example, wheat prices in India dropped by 50 percent between 1928 and 1934.

Peasants and farmers in India suffered more severely than urban populations. Although agricultural prices fell drastically, the colonial government refused to reduce its revenue demands. Those peasants who produced for the global market were the worst affected. Consider the jute producers in Bengal: they grew raw jute, which was processed into gunny bags for export. When gunny exports collapsed internationally, the price of raw jute fell by over 60 percent. Peasants who had borrowed money hoping for better times or to increase production faced ever lower prices, leading them deeper into debt. A lament from Bengal jute growers captured this plight:

"grow more jute, brothers, with the hope of greater cash.
Costs and debts of jute will make your hopes get dashed.
When you have spent all your money and got the crop off the ground,
... traders, sitting at home, will pay only $\textsf{₹}$5 a maund."

Across India, peasants' indebtedness surged. They depleted savings, mortgaged their lands, and sold jewelry and precious metals to cover expenses. During the depression years, India became a net exporter of precious metals, particularly gold.

The renowned economist John Maynard Keynes believed that India's gold exports contributed to global economic recovery. They certainly aided Britain's recovery but did little to alleviate the suffering of the Indian peasant. Rural India was thus experiencing significant unrest when Mahatma Gandhi launched the civil disobedience movement at the peak of the depression in 1931.

The depression had a less severe impact on urban India. Falling prices meant that people with fixed incomes, such as urban landowners receiving rents or middle-class salaried employees, found themselves relatively better off as the cost of goods decreased. Industrial investment also saw some growth as the government, pressured by nationalist opinion, extended tariff protection to certain industries.

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Rebuilding A World Economy: The Post-War Era

Just two decades after the end of the First World War, the Second World War broke out (1939-1945). This global conflict pitted the Axis powers (primarily Nazi Germany, Japan, and Italy) against the Allies (Britain, France, the Soviet Union, and the US). It lasted for six years, fought across numerous fronts and locations on land, sea, and in the air. The scale of death and destruction was immense; an estimated 60 million people (about 3% of the 1939 global population) were killed, directly or indirectly. Millions more were injured.

Unlike previous wars, a much larger proportion of deaths occurred among civilians than soldiers, resulting from war-related causes. Vast areas of Europe and Asia were devastated, with many cities destroyed by aerial bombing or heavy artillery. The war caused immense economic damage and social disruption, making the task of reconstruction long and arduous.

Two critical factors influenced the post-war reconstruction efforts. Firstly, the **emergence of the United States** as the dominant economic, political, and military power in the Western world. Secondly, the **prominence of the Soviet Union**, which had made immense sacrifices in defeating Nazi Germany and transformed into a world power during the very period when the capitalist world was grappling with the Great Depression.

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Post-War Settlement And The Bretton Woods Institutions

Economists and politicians derived two key lessons from the economic experiences of the inter-war period, particularly the Great Depression. Firstly, they concluded that an industrial society based on mass production requires sustained **mass consumption**. To ensure high and stable consumption levels, high and stable incomes are necessary, which in turn depend on stable employment and full employment. They recognized that market forces alone could not guarantee full employment or economic stability. Therefore, active **government intervention** was deemed essential to manage fluctuations in prices, output, and employment and ensure economic stability.

The second lesson concerned a country's economic interactions with the rest of the world. The goal of full employment could only be realistically pursued if governments had the power to control the flow of goods, capital, and labour across their borders.

Based on these lessons, the primary objective of the post-war international economic system was to maintain economic stability and achieve full employment in the industrialized nations. The framework for this system was agreed upon at the United Nations Monetary and Financial Conference, held in July 1944 in Bretton Woods, New Hampshire, USA.

The Bretton Woods conference established two major international institutions:

• The International Monetary Fund (IMF): Created to address member nations' external surpluses and deficits in international payments.
• The International Bank for Reconstruction and Development (IBRD), commonly known as the World Bank: Established to provide finance for post-war reconstruction efforts.

These two institutions are collectively referred to as the Bretton Woods institutions or the Bretton Woods twins. The post-war international economic system is often described as the Bretton Woods system.

The IMF and World Bank began their financial operations in 1947. Decision-making power within these institutions is primarily held by the Western industrial powers, with the United States holding effective veto power over key decisions.

The international monetary system links national currencies. The Bretton Woods system was founded on the principle of **fixed exchange rates**. Under this system, national currencies were pegged to the US dollar at a fixed exchange rate. The dollar itself was fixed in value relative to gold, at a price of \$35 per ounce of gold.

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The Early Post-War Years

The Bretton Woods system ushered in a period of unprecedented economic growth for the Western industrial nations and Japan. Between 1950 and 1970, global trade expanded annually at over 8 percent, and incomes grew by nearly 5 percent per year. This growth was also remarkably stable, with minimal large fluctuations. For much of this time, unemployment rates in most industrial countries averaged less than 5 percent.

These decades also saw the rapid global dissemination of technology and industrial practices. Developing countries, eager to catch up with advanced industrial nations, invested heavily in importing modern industrial plants and equipment.

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Decolonisation And Independence

At the end of the Second World War, large parts of the world remained under European colonial rule. Over the following two decades, most colonies in Asia and Africa achieved independence and became free nations. However, these newly independent countries were often burdened by widespread poverty, lacked sufficient resources, and faced significant economic and social challenges as a legacy of prolonged colonial exploitation.

The IMF and the World Bank had been initially designed to address the financial needs of industrialized nations recovering from the war. They were not well-equipped to tackle the deep-seated issues of poverty and underdevelopment prevalent in former colonies. As Europe and Japan quickly rebuilt and strengthened their economies, they became less reliant on the Bretton Woods institutions. Consequently, from the late 1950s, the IMF and World Bank began to shift their focus more towards assisting developing countries.

Ironically, many of these less developed regions, which had been part of Western empires, now found themselves seeking guidance and financial assistance from international agencies largely controlled by their former colonial rulers. Even years after gaining independence, former colonial powers often maintained control over crucial natural resources, such as minerals and land, in their former colonies. Large multinational corporations (MNCs) from other powerful countries, like the US, also frequently secured favorable terms to exploit the natural resources of developing countries very cheaply.

Despite the growth in the industrialized world, most developing countries did not fully benefit from this rapid expansion in the 1950s and 1960s. In response, they organized themselves into a group known as the Group of 77 (G-77). The G-77 represented developing nations that formed a coalition to demand a New International Economic Order (NIEO). Their vision for the NIEO was a global system that would grant them genuine control over their own natural resources, increase development assistance, ensure fairer prices for their raw materials, and provide better access for their manufactured goods in the markets of developed countries.

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End Of Bretton Woods And The Beginning Of ‘Globalisation’

Despite the period of stable and rapid economic growth facilitated by the Bretton Woods system, underlying issues began to surface from the 1960s. The rising costs of the United States' overseas military and political commitments started to weaken its financial position and competitive edge. The US dollar gradually lost its unchallenged confidence as the world's primary currency and could no longer maintain its fixed value relative to gold. This ultimately led to the breakdown of the fixed exchange rate system and the adoption of a system of **floating exchange rates** from the mid-1970s.

The international financial system also underwent significant changes from the mid-1970s. Developing countries, which had previously relied on international institutions for loans and development aid, were increasingly compelled to borrow from commercial banks and private lenders in Western countries. This shift contributed to periodic **debt crises** in the developing world, resulting in lower incomes and increased poverty, particularly in regions like Africa and Latin America.

The industrialized world also faced economic challenges, with unemployment rates beginning to rise in the mid-1970s and remaining high until the early 1990s. From the late 1970s, multinational corporations (MNCs) started relocating their manufacturing operations to countries with lower wages in Asia.

China had been largely isolated from the post-war global economy after its revolution in 1949. However, the introduction of new economic policies in China and the eventual collapse of the Soviet Union and communist regimes in Eastern Europe brought many of these countries back into the global economic system.

Countries like China offered relatively low wages, making them attractive locations for foreign MNCs seeking to reduce production costs and compete more effectively in global markets. The relocation of industries to low-wage countries stimulated global trade and capital flows. Over the past two decades, the world's economic map has been significantly altered by the rapid economic transformation of countries such as India, China, and Brazil.